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Connecticut Bankruptcy Law Blog

Chapter 7 vs. Chapter 13: which is better for you?

If you are a Connecticut resident whose debts have gotten out of hand and you are unable to pay them, you may be considering bankruptcy as a last resort. You may or may not be aware that there are several different types of bankruptcy and that you will need to decide which type is better for you.

Most people file either a Chapter 7 or a Chapter 13 bankruptcy. Both types can help you relieve or discharge your debts, but there are differences between them as to who is eligible for each type and exactly what each type will do for you.

Beware of easy alternatives to the MHA program

Those seeking debt relief in Connecticut no longer have access to the Making Home Affordable program due to the fact that the United States Treasury is no longer accepting new applications. There are alternatives, but debtors should beware of programs that seem too good to be true.

The MHA program was a direct response to the housing crash. The US Treasury website info page on the program states that the final deadline for applications for debt assistance expired in December of 2016. While this federal incentive benefited many homeowners by providing billions of dollars of assistance in the form of mitigated losses and modified loans through the Home Affordable Modification Program, many remain in danger of losing their homes. 

Future mortgage obstacles from foreclosure and bankruptcy

While it is no secret that Connecticut bankruptcies and foreclosures have the potential to damage credit, the extent to which this occurs and the mechanics behind the process remain a mystery to many people, even those considering entering the bankruptcy process. This might lead to unexpected disappointments when pursuing a new mortgage. Understanding the difference between Chapter 13 and foreclosure is the first step in dispelling this mystery.

The Administrative Office of the United States Courts describes Chapter 13 bankruptcy as an alternative to foreclosure. If an individual qualifies for and complies with all the rules of this type of bankruptcy, foreclosure proceedings will stop. This gives those who are able to manage more reasonable terms of liability a way of addressing debts without losing their homes, often via payroll deduction. The process also has the potential to lower payment amounts on certain types of debts.

Eligibility requirements for Chapter 7 bankruptcy

Connecticut residents looking to eliminate eligible debt and stop repossessions may find the answer in filing for Chapter 7 bankruptcy. As with Chapter 13 bankruptcy, federal law lays out certain requirements a person or entity must meet in order to qualify for Chapter 7. Among these factors, eligibility can be affected by a filer’s financial standing and past record in bankruptcy court.  

The U.S. Courts website points out that to file for Chapter 7, a debtor can be an individual or a business. Eligible businesses can include anything from partnerships to corporations. However, an individual filer may be barred from filing Chapter 7 or any other type of bankruptcy if the person had previously filed for bankruptcy in the past 180 days and did not appear in court. A filer also cannot have dismissed a previous bankruptcy case if the creditors looked for relief from the court to regain property that they hold liens on.

Do I need to complete new chapter 13 forms?

You might be confused regarding some of the recent changes in both the District of Connecticut and the federal chapter 13 bankruptcy procedures, most notably the revised forms. Your new document requirements are part of an ongoing initiative by the Advisory Committee on Bankruptcy Rules, a program which began in 2008 and, more recently, had a significant milestone in 2015 with a national overhaul of various forms. Once again, as of this December, this program might require you to complete new versions of previously completed forms.

First of all, if you are unsure as to whether you are applying for chapter 13 rather than another type of bankruptcy, here are a few of the reasons you might be doing so:

  • To save your home
  • To reduce interest payments
  • To stop creditor harassment

Eligibility requirements for Chapter 13 bankruptcy

Individuals who are burdened with personal debt and fear being cleaned out by creditors or are looking for alternatives to foreclosure may see filing for Chapter 13 bankruptcy in Connecticut court as an attractive option. While Chapter 13 presents clear benefits, this form of bankruptcy is not open to everyone. Anyone seeking to file Chapter 13 must meet certain criteria.

According to the Findlaw site, one of the most obvious requirements is that Chapter 13 is restricted to those filing as individuals or jointly as spouses. This means if a person owns a business that is a corporation and a limited liability company, that individual would have to file for Chapter 11 protection instead. However, since money earned as a sole proprietor is indistinguishable from a person’s own personal income, filing Chapter 13 for personal debts is permitted. A business owner in a partnership can also file Chapter 13. On the other hand, commodity brokers and stockbrokers cannot file for Chapter 13.

Understanding the power of short sale agreements

Navigating the language associated with Connecticut mortgage agreements might be challenging for those unfamiliar with real estate or finance. This challenge is compounded if the need for understanding comes along with a stressful situation, such as a bank compelling a homeowner to satisfy debt agreements. Regardless of the situation, it could benefit mortgagees to know their options. Here is some information on the loss mitigation process, one such alternative to formal foreclosure.

The United States Consumer Financial Protection Bureau lists the definition of short sale as a type of loss mitigation that involves the mortgagor allowing a mortgagee to sell a property for less than amount remaining on the mortgage. The negotiation process surrounding these types of sales might be complex: It typically involves all stakeholders in a debt. The agreement between the parties commonly sets an acceptable sale price and makes conditions for any future responsibility, or lack thereof, on the part of the debtor.

What are the advantages and disadvantages of bankruptcy?

Reaching the decision to declare bankruptcy usually isn’t easy. Many people still have a negative perception of bankruptcy, even though it can sometimes be the best way to start a clean slate financially. Even so, bankruptcy has far-reaching implications for your credit score, your debt and your current and future financial stability. It can have negative consequences, but it also has strong benefits.

When considering declaring bankruptcy, take some time to carefully weigh the pros and cons. What follows is a list of some of the most important advantages and disadvantages of bankruptcy:

Discuss Your Case With A
Respected Bankruptcy Attorney

Contact my office to discuss your debt relief needs directly with me as your lawyer. I offer a free initial consultation to all new clients where you can learn more about your legal options and what I can do to help you. I am available during regular business hours and by appointment at other times. You can reach me by phone at 860-952-3674 or via email.

My law firm is a debt relief agency as so designated by Congress in the year 2005. I help people file for bankruptcy relief under Title 11 of the United States Code, known as the Bankruptcy Code.

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